As credit cards business is highly competitive, there is no denying fact that SBI Cards faces competition in the credit card market from other credit card issuers
SBI Cards and Payment Services IPO hit the primary market with a Rs 10,350 crore initial public offering today, the bidding process will close on March 5. Under normal circumstances, IPOs open for subscription for three days, but SBI Cards IPO will remain open for subscription for four days. For the first three days, the issue will be open for all bidders – QIBs, NIBs, and Retail investors (including SBI shareholders and employees) while the fourth day will be exclusively for Retail investors only. SBI Cards IPO is poised to become the fourth-largest PSU IPO in India after Coal India, General Insurance Corporation of India (GIC Re) and ONGC. The lot size has been decided at 19 equity shares, which means one will have to shell out at least Rs 14,250 to bid for the issue. Analysts are upbeat on SBI Cards IPO, recommending it to subscribe, but there are certain key risks to it as well. These include competition from other leading credit card players, any change in charge rates and fees due to regulatory actions, and high borrowing cost being an NBFC, says Geojit Financial Services in a research note.
It may be noted that SBI Card is the only player who has a tie-up with IRCTC which provides offers on railway ticket booking. SBI Cards has raised Rs 2,769 crore from anchor investors. As per the regulatory filing, 12 mutual funds among the 74 anchor investors have been allotted a total of 36.7 million shares at the offer’s upper price band of Rs 755 apiece. “Given key strengths of the company like – its unique business model which is a pure credit card play, high growth phase along with strong profitability matrix, favourable demographic dividend is likely to trade at higher multiples. We accord fair value of Rs 1220, giving upside potential of 62% from the IPO Price,” Anusha Raheja, BFSI Research Analyst at LKP Securities said.
However, as the credit card business is highly competitive, there is no denying fact that SBI Cards faces competition in the credit card market from other credit card issuers. “SBI Cards compete with other credit card issuers and payment solutions providers such as banks, payment banks, NBFCs and financial technology enterprises on the basis of a number of factors, including brand, reputation, customer service, product offerings, incentives, pricing, technology and other terms,” HDFC Securities said in a research note.
As per draft paper for the IPO, SBI Cards would offer up to 130,526,798 equity shares through an offer-for-sale route. This would include up to 37,293,371 shares by SBI and 93,233,427 scrips on offer by Carlyle Group. The company is planning to issue new shares worth Rs 500 crore. The price band of the initial public offer (IPO) of SBI Cards and Payment Services has been fixed at Rs 750-755 per share. SBI employees will be eligible for a discount on the IPO of Rs 75 per share.
Given its strong financials and vast customer base, analysts have given subscribe rating to it. Currently, SBI holds 74 per cent and CA rover Holdings holds 26 per cent stake in SBI Cards. SBI would divest up to 4 per cent stake in SBI Cards through the issue. “The most awaited IPO of the season SBI Cards is here and we are all for investors to subscribe to this Rs 10354.77 crore IPO. SBI Cards and Payments Services Limited would be the very first in the credit card space to be listed on Indian bourses. It is the most profitable vertical of SBI Bank, it’s largest and only promoter, which reflects their commitment to maintain and garner growth within the overall industry,” Umesh Mehta, Head of Research, Samco Securities said.